Tax is straw

IN the current climate of declining profits, global uncertainty and rising unemployment, there has never been a better time to give the entire economy a kick-start by scrapping, or at least reducing, state-based payroll taxes.

In Queensland, payroll tax is paid at a rate of 4.75% of gross wages.

The levy kicks in once a business' salary bill hits $1million and is imposed irrespective of whether a business is profitable or not.

The Queensland government rakes in $2.7billion each year as a result of payroll tax. Unlike charges like motor vehicle registration, the tax gives nothing back to the sector that pays it and if you listen to treasurer Andrew Fraser, the tax is necessary in order to fund public services such as infrastructure, roads, schools and hospitals.

In the real world, however, there is no doubt that this tax is a real disincentive to small businesses.

For example, those that are creeping up to the $1million threshold will naturally be reluctant to put on any more staff when they know that if they do, they are suddenly exposing themselves to not just the cost of the extra staff member, but a tax of 4.5% on the total wages bill.

In many cases, it means that the last employee who tips the business over the threshold has effectively cost the business at least double their annual salary due to the payroll tax that is suddenly incurred.

It is little wonder that the “cash economy” is still a favoured forum for many small businesses when, on top of the GST and income tax, there is also the potential for a 4.5% payroll tax when you suddenly put an employee “on the books”.

In the current economic climate, this is one tax that our community can do without and a tax that, for some employment positions, can be the straw that breaks the camel's back.